Mumbai, March 25: Liquidity conditions in the country continue to remain tight despite the Reserve Bank aggressively bringing down the cash reserve ratio (CRR) by 125 basis points, which has released over Rs 79,000 crore into the system.
Even as banks are raising over Rs 1,40,000 crore daily from the central banks repo window following the 75-basis-point cut in CRR earlier this month, some lenders have raised deposit rates on select maturities. The move comes at a time, many senior bankers feel, interest rates have peaked.
Interest rates on certificate of deposits (CDs) — an instrument used by banks to borrow short-term money from the market — have spiked to a three-year high.
PSU banks such as the Bank of Baroda (BoB) and Bank of India (BoI) have hiked deposit rates on select maturities. Analysts said the tight liquidity condition was one of the factors responsible for the hike. The BoI recently raised interest rate on 3-5 year term deposits by 75 basis points to 9.25 per cent and by half a percentage point to 9.25 per cent on deposits above five years.
Recently, Allahabad Bank has launched a special domestic term deposit scheme at an interest rate of 9.25 per cent on deposits of Rs 5 crore and above having a maturity period of 15-120 days.
ING Vysya Bank recently said it would offer 10 per cent special rate to deposit holders (for 366 days) against 9.75 per cent earlier to promote its Active Deposit scheme.
A senior official in the asset liability committee (ALCO) of a bank, which has raised deposit rates, said the CRR cut by the RBI this month was largely to make up for the advance tax outflows.
The liquidity deficit in the banking system has become structural despite aggressive reduction in the CRR and other fund-infusing measures such as open market operations by the RBI. This comes despite demand for credit being lacklustre. The central bank must throw light on why liquidity tightness in the system continues to persist, the official said, adding that heightened economic uncertainty coupled with liquidity shortfall had put upward pressure on interest rates.
However, there are others who maintain that the liquidity situation should get better in the coming days with bond redemptions and the resumption of government spending.
In a recent report, Kashyap Jhaveri, banking analyst at Emkay Global, said the spike in CD rates was unlikely to last as short-term rates rise during the fourth quarter because of a higher demand for credit and higher government security borrowings.
The finance ministry and the RBI are likely to finalise the market borrowing programme for the first half of the next fiscal on March 27.
The meeting to decide the borrowing plans for April-September of 2012-13 may happen on March 27, official sources said, adding efforts would be made to complete the programme in a non-disruptive manner.